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Economy to impact card reward programs says study

NEEDHAM, Mass. (4/10/08)--Credit card issuers with rewards and loyalty programs may need to include strategies that adapt to the economy and focus on the fundamentals of good credit management in those programs, says recent research.

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Although rewards programs have been effective for card issuers for nearly 25 years, the dramatic changes in the nation's economy means that many current programs are less relevant to consumers, said TowerGroup, a financial services research firm. The Needham, Mass.-based firm's new ViewPoint estimates that today rewards programs are a factor in nearly 70% of all transactions in the U.S. card industry. Consumers have embraced well-designed programs, and issuers have proved they can increase preference, drive purchase activity and create "top of the wallet" status for their cards through loyalty programs. However, more Americans today express less confidence in the economy, expect a reduction in household wealth, and face shakier employment status, said the report's author, Brian Riley, senior research analyst in the bank cards practice at TowerGroup. TowerGroup advises issuers to ensure that loyalty programs not only cause consumers to aspire to potential benefits such as a high-end vacation but also inspire them to keep their credit in good standing. Credit unions and other issuers should consider using card rewards to improve credit management, in lieu of rewards such as trips to Hawaii and luxury goods, said the firm. Issuers could include rewards options such as cash-based credits that can be applied to open balances, stimulating good consumer credit behavior and motivating consumers to pay down their balances. TowerGroup said rewards card issuers will be affected by four consumer trends this year: credit quality deterioration, revenue pressure; fragile economy; and vulnerable consumers.